Melbourne suburbs hold the key for hotel investors

Major population growth is driving demand in the city's burgeoning suburbs

November 20, 2018

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Melbourne’s suburbs are catching the eye of hotel investors and developers, as economic growth spreads beyond the city centre in one of the world’s most liveable cities.

Major population growth is driving demand in the burgeoning suburbs, and with the city forecast to expand by an additional 2.8 million by 2046 – the largest growth nationally – the trend shows no sign of slowing.

A strong investment case for internationally-branded hotels in Melbourne’s metropolitan areas, and the long-term trading potential of these assets, are ushering a new wave of entrants into the sector.

Many established investors, which have historically focused on CBD markets, are expected to follow.

Newcomers to the sector tend to already be invested in major office or retail complexes, and are developing hotels to boost the amenity offering as well as to capitalise on the pent up demand for hotel accommodation.

Among them are Chadstone Shopping Centre owners Vicinity Centres and Gandel Group. The pair is to add an A$130 million hotel to their sprawling commercial and retail precinct, located in the busy Chadstone-Monash corridor, in Melbourne’s south east.

Like never before, Melbourne’s metropolitan markets are providing investors with a compelling opportunity to capitalise on growth of the city’s economy and population while also diversifying geographically, says Peter Harper, the head of JLL Hotels & Hospitality Group’s Melbourne office.

“For a very long time metropolitan Melbourne has been starved of institutional quality hotel product, and the few investment opportunities that have come to market have been hotly contested, such as the Chifley Doveton, Clarion on Canterbury and Novotel Glen Waverley.

Underpinned by strong economic fundamentals and a clear demand from operators and end users the market is now delivering more high quality product.

In the A$1 billion Essendon Fields business park, in the city’s north west, transport magnate Lindsay Fox and veteran property developer Max Beck incorporated Australia’s first Hyatt Place-branded hotel into a major retail and commercial complex, developed on surplus airport land.

Hyatt has announced it will be opening its second Hyatt Place hotel in Springvale, in a 200-room development from Australian boutique investment house PE Capital (which has also announced three new hotels in other areas of metropolitan Melbourne). The Springvale hotel will sit in a mixed-use complex, including co-working facilities and retail.